Would
it surprise you even more when I said the ratio of house prices to wages are still
lower today when compared to 1871? Yes
you read that correctly, as a proportion of average wages British house prices
are 17.6% proportionally cheaper today than they were in 1871.
I
wish to talk about the last 150 years of the British property market and later
in the article, the Neath property market. I will also touch on why, before the
1900s, buying a home in Neath was considerably more expensive than today and
why that changed.
So,
let’s look at some interesting stats to get us started :
- In 1871, each house was occupied by an average of 5.33 people
(i.e. for every 100 houses, 533 people lived in them), whilst today that stands
at 2.39 people per house - In 1871, there were 4.5 million properties in the UK, whilst
today that stands at 27.9 million - In 1871, the weekly average wage was 13s 8½d (68p) whilst
today it is £585.50 - In 1871, only 20% of people owned their own home, whilst
today its stands at 65%
I
stated in the first part of the article it was more expensive to buy in the latter
parts of the 19th Century than today. It may only be of historical interest, but
back in 1871, the ratio of average house prices to average wages was 10.5 to 1 (i.e.
the average house was worth ten and half times the average person’s wage),
whilst today it stands at 8.8 to 1.
Interestingly,
for the next 45 years, that ratio went on a downward trend relative to wages
and only stopped falling after WW1, where the average house was worth only 2.2
times the average wage. This made houses more affordable and set the
foundations for the homeowning passion we Brits have today.
So
why did this happen, what can we learn from it and what does it mean for Neath
homeowners and Neath landlords?
There
are three significant drivers that made property a lot more affordable between
1871 and 1911: the Victorians built more property, made them smaller and
people’s wages rose significantly.
- In the 40 years between 1871 and 1911, the number of
properties in the UK rose from 4.5 million to 8.9 million. To give you some
perspective, there were 18 million properties in the UK in 1981. If the UK had
grown by the same rate between 1981 and today that was experienced between 1871
and 1911, there would be 35.6 million households in the UK (and not the 27.9 million
mentioned above).
- In 1871, the average plot size of a property was 0.23 acres,
yet by 1911, that was down to 0.06 acres (or a plot of 72ft by 40ft). This came
about from building smaller types of property (i.e. a change away from larger
Georgian detached houses towards the infamous rows of Victorian terraces),
and a downshift in the average size of houses within each category.
- The average value of property dropped by 26% between 1871
and 1911, whilst wages rose by 85% over the same time frame.
So, by 1911, the average Neath property had
dropped in value from £172 in 1871 to £128.
N.B. – you might have noticed I wrote £172 in
a slightly different way in the title of the article. Up to 1971, a
pound was split not into 100 pence but 240 pence. There
were 12 pence in a shilling and 20 shillings (or 240 pence) in a pound. It was
expressed in the form £sd and spoken
as “pounds, shillings and pence”. I
dropped that into the title as it’s the 50th anniversary this year of
when the UK decimalised its currency (younger readers – do google the story –
it’s a fascinating topic).
So back to the property market and at the
end of WW1, four in five people still rented, virtually all from private
landlords. Politicians were concerned about the poor living standards of people’s
homes, and this led to the ‘homes fit for heroes’ 1919 Housing Act which
delivered subsidies for local councils to build council houses. The average
value of a Neath property in 1922 was £201.
The
1930s
– By 1930, the average value of a Neath property stood at £254. With the country
building a third of a million houses per annum, interest rates fixed at 2% and
hardly any planning regulations, supply of property was outstripping demand, so
the average Neath home dropped ever so slightly in value to £235 by 1938.
The
1940s
– With the bombing of many towns and cities and housebuilding being stopped
because of the war, this created a perfect storm to increase house prices after
the war. By 1947, the average Neath home had risen in value to £786 because just
as food was rationed during and after the war, so were building materials.
Builders could spend no more than £350 on building materials for a new home (and
that lasted until 1954).
The
1950s –
The ’50s were all about building council houses – a quarter of a million of
them each year. By 1959, the average Neath home had risen steadily to £1,090.
The
1960s
– This decade saw even more houses being built in the UK, with an average of a
third of a million houses a year being built. Neath is full of 1960’s council
houses and now even more owner-occupied housing, meaning by the end of the
decade Britain had as many homeowners as renters. The average Neath house had
risen in value to £2,000 by 1969.
The
1970s –
We experienced the first boom and bust housing bubble in the early 1970s with
house prices rising by over 30% a year in the early years of the decade (so the
current 10% a year is child’s play!) but prices dropped in 1974. They recovered
quickly in the following years, not because of increased demand but due to
hyperinflation, making the average Neath house price rise to £10,169 by 1980.
The
1980s –
This was the decade of council tenants being able to buy their own homes,
although not many people know it was an idea from Labour. They decided against
the idea, but it was seized upon by the Tories, who made it the cornerstone of
their 1979 election manifesto. The property market helped improve the economy,
and by 1988, Neath property values increased to £21,270 (only to drop by 32% a
couple of years later).
The
1990s –
The housing market crash of the early 1990s was painful for all, exacerbated by
mortgage interest rates being raised to 15% on Black Wednesday (16
September 1992) and left there for 12 months. Unemployment went from 1.5m
to 3m for the second time in ten years, and many of those homeowners who had
taken out large mortgages in the late 1980s housing boom could no longer afford
the repayments because of the high interest rates, meaning repossessions went
through the roof. The crash also made builders nervous, and they only built
150,000 houses on average a year in this decade. Yet, by the mid-1990s, things
started to improve. So much so, the average Neath home was worth £39,874 by the
turn of the millennium.
The
2000s – The decade of cheap mortgages and the rise of
buy-to-let, together with a severe drop in the number of new homes being built,
contributed to the UK’s third big housing bubble since WW2. The average Neath house
price more than doubled to £106,779 by 2008, before the Credit Crunch brought
the boom to an end, and a year later (2009), the average Neath property had
dropped to £94,841.
The
2010s
– The property market started to come back to life in the early 2010s with
property values steadily rising throughout the decade, yet builders were only
building around 135,000 new homes a year. It also might surprise you that by
2015/6, the number of homeowners was starting to rise quite significantly,
meaning today, as we enter the 2020s decade, the average value of a Neath
property now stands at £136,919.
So,
now we are back to 2021.
Yes,
your Great-Great-Grandfather might have been able to buy their Neath house for a
shade over £172 in 1871. Taking inflation into account since 1871, that same Neath
house today would be £20,765.24, yet if his wages had increased by inflation at
the same rate, the average wage today would be £81.91 per week, not the current
£585.50 per week.
I
appreciate there are plenty of other factors involved with this topic, such as
the cost of renting, raising a deposit, changing lifestyles and the biggest
point, the cost of borrowing money on a mortgage.
All
this begs the question, what does the future hold for the Neath property
market?
It’s obvious since the mid-1980s, house prices
have sustained a period of impressive growth (even withstanding a couple of property crashes). The Bank
of England has gone on record to say that much of the rise in average house values,
comparative to wages, between 1985 and now can be seen because of a sustained,
dramatic and consistently unexpected decline in real interest rates and additionally
concludes that: ‘An unexpected and persistent increase in the medium-term
real interest rates will generate a fall in real house prices.’
Cheap mortgages and a lack of building have
created this situation. So as long as interest rates don’t go back to their
long-term average of the 5% to 7% range or the Government decides to increase
building new homes to half a million a year (from the current 240,000 per year)
… things will carry on as they are in the medium to long-term.
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